| Abstract |
Policy initiatives to manage gold imports in India have historically relied on the use of customs duty. However, the presence of a multi-duty structure essentially offers gold traders a legal channel to re-route imports with little risk of punitive action. In this paper, we present multiple instances from FY 2023-24 where importers have significantly exploited these loopholes to import at lower rates. We also observe that exhaustive identification of alternative routes that traders can potentially exploit is infeasible. Reactive interventions to curb the traders taking advantage of the loopholes or gaps in policies are also not helpful in the long run. Traders are quick enough to snoop out the best possible channels to maximize their outcomes, which systemically leads to uneven playing fields for different types of traders. Subsequently, we show that the use of multiple taxation structures as a tool to contain Current Account Deficit (CAD) and to facilitate a level-playing market for importers of various sizes, in-fact is counter-effective. Traders are able to quickly discover more loopholes and are able to legally increase their import volumes at lesser imports duty. The current multi-duty structures to manage gold imports and in turn, India’s current account deficit, continue to be weak. To curb such unintended discounts and imports arbitrage in the domestic gold market, it is recommended that a single import duty is levied on all variants of the precious metal. |